The idea of raising rental property rents is a sensitive issue with real estate owners and tenants alike.
For tenants, of course, it's understandable--no tenant wants to pay more rent for a unit tomorrow they've been living in for less rent yesterday. For some property owners (at least for small property owners) the idea of having to increase rents on tenants they've become friendly with or the fear that a rent increase might generate unwanted vacancies is tough.
The real estate investor, however, must keep in mind that owning rental property is a business, and raising rents comes with the territory. Your cash-on-cash return and the ultimate value of your building depend on the amount of rents you collect. So raising rents (when a rent increase is in order) is needful.
Still, no one likes to look like a Scrooge, and certainly no landlord wants to drive out good tenants. So here are a couple of suggestions that might help.
1) Know what the competition is doing. You probably won't lose tenants with a nominal rent increase when it's in line with the rental market rate in your area. Tenants generally aren't willing to suffer the stress and cost of relocating when it means paying the same rent down the street from you.
2) Be consistent with your rent increases. Whether you raise rents annually or semi-annually, regular modest increases are more easily understood and taken in stride than irregular massive increases. Most working people do understand cost of living adjustments. Just be sure to raise rents about the same time during the year; consistency will reduce friction generally caused by the element of surprise.
3) Consider doing something extra for the tenants. When you feel the need to take some of the sting out of the rent increase, you might want to offset it by steam cleaning the carpets, washing the outside windows, or making some other upgrade to the unit that might be in order anyway. If you really want to show the tenant what a wonderful landlord you are, you might even consider giving them a gift certificate to the local Starbucks.
4) Think about posting the rent on your "For Rent" signs. When existing tenants see what a new tenant will have to pay for the same unit they currently rent for less (assuming they are paying less, even after the increase), they are less apt to object and might even go to bed that night appreciative about the good deal they are getting.
Remember, owning real estate investment property is a business, and as a landlord you must not ignore raising rents to make your investment profitable. If a rent increase is in order, raise the rents. You may be surprised to find that your tenants will neither consider you as a greedy Scrooge, nor will they vacate.
James Kobzeff is a real estate broker and developer of ProAPOD Real Estate Investment Software. http://www.proapod.com.
The author has permitted the reprinting and redistribution of this article.